Oecd’s Plan For Global Minimum Corporate Tax Rate Just Got Backed By 130 Countries
July 29, 2021 | Written by: Sohail Afzal
The Organization for Economic Cooperation and Development (OECD), an organization in Paris, has announced the global minimum corporate tax, which should be 15%. It claims that they would be able to yield around $150 billion annually in the additional global tax.
Apart from that, it has also been said that those doing businesses in a country where they don’t have any physical presence would also be taxed. One hundred thirty countries, representing 90% of the global GDP, have supported this in a two-day talk.
According to Joe Biden, President of the United States of America, when the global minimum tax gets implemented, multinational companies would no longer be able to pit countries against one another in an attempt to keep the tax rates down.
He also said that the multinational companies wouldn’t escape from paying their fair share by covering up their profits made in the United stated or countries other than the United States in lower tax-jurisdictions.
The minimum corporate tax does not obligate the countries to fix their rates at the agreed floor. Still, it would get other countries to implement a top-up levy to the minimum on companies’ income coming in from a lower rate country.
In June, a group of seven advanced economies agreed that the tax of 15% on multinational companies has to be implemented. However, a meeting would be held for a big group of twenty significant economies for political endorsement.
Countries that France leads have already started implementing digital taxes aimed at the big tech giants like Amazon, Google, and Facebook. The technicalities of this rule have to be confirmed by October; therefore, this rule can not be implemented this year. The countries backed the statement made that this rule would be implemented by 2023.
Nine countries are the low-tax EU members that did not sign. These countries include Ireland, Estonia, Hungary, Peru, Barbados, Saint Vincent, Grenadines, Srilanka, Nigeria, and Kenya.
For all the countries in Europe to follow this rule, Europe needs to pass an EU law which most probably will be done during France’s presidency in the initial months of 2022. However, that would require a lot of support from all the European members.
The companies with a turnover of more than 750 million euros (that is around $889 million) would be required to pay this tax of 15%. However, shipping companies would be exempted from this law.
It would provide a fair gaming field for multinational companies. The taxes would be divided according to their profits in a much better way. Since the start of E-commerce, many big giants can make profits in low-tax countries regardless of where the money was earned.
Implementation of this law would be very challenging. Monitoring and charging the taxes from the digital companies would require a lot of coordination between the IRS and the tax authorities daily.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.